Inflation Concerns And Yields Remain In Focus

Notes/Observations

• European yields continue to rise as supply continued to come to market.
• UK Apr CPI rises to 1.5% with further gains possible to target (as beyond) as the economy reopens.
• Supply-chain constraints and labor shortages in the US raising fears about an upward spiral in prices – question remains whether such factors would persist beyond the reopening of the economy???
• Iceland Central Bank ends its easing cycle with a 25bps hike.
• Focus on FOMC Apr Minutes (to be released later today).

Asia:

• Japan Mar Final Industrial Production M/M: 1.7% v 2.2% prelim; Y/Y: 3.4% v 4.0% prelim.
• BOJ Gov Kuroda reiterated stance that would not hesitate to add easing if needed, Uncertainty regarding domestic outlook was high.
• South Korea and Hong Kong closed for holiday.

Coronavirus:

• Total global cases 164.9M (+0.4% d/d); total deaths: 3.42M (+0.4% d/d).
• Japan Chief Cabinet Sec Kato stated that would handle adding state of emergency areas flexibly based on the situation. Lifting state of emergency by end of May not feasible and might add further areas.

Europe:

• European Parliament expected to pass motion on Thursday (May 20th) that would formally freeze progress on EU-China investment deal ratification (as expected).

Americas:

• Fed’s Quarles (hawk, voter) stated that a strong economic recovery was underway but it is not complete.

Energy:

• Weekly API Crude Oil Inventories: +0.6M v -2.5M prior.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -1.13% at 438.02, FTSE -1.04% at 6,961.25, DAX -1.32% at #, CAC-40 -1.04% at 6,287.87, IBEX-35 -0.59% at 9,130.00, FTSE MIB -0.94% at 24,647.50, SMI -0.72% at 11,061.21, S&P 500 Futures -0.66%].
• Market Focal Points/Key Themes: European indices open broadly lower and fell further as the session wore on; better-performing sectors include telecom and real estate; to the downside are materials and energy; AstraZeneca reports third covid vaccine offers increased protection; John Laing receives takeover offer from KKR; REE to sell stake in OQ; focus on FOMC minutes later in the day; earnings expected during the upcoming US session include Lowes, Telecom Italia, and Target.

Equities

• Consumer discretionary: Dunelm [DNLM.UK] +8% (trading update).
• Financials: John Laing Group [JLG.UK] +11% (to be acquired), Julius Baer [BAER.CH] +3% (AuM data), Experian [EXPN.UK] -3% (earnings).
• Industrials: BAE Systems [BA.UK] -1% (trading update).
• Telecom: Deutsche Telekom [DTE.DE] -2% (Reportedly Deutsche Telekom looking to raise stake in T-Mobile US).

Speakers

• ECB Financial Stability Review stated that the risks were more unevenly distributed amid market exuberance; potential for banking sector credit risk to worsen. Corporate solvency risks to rise as public support measures faded. US equity correction may be substantial and the risks of a correction in residential property markets has increased.
• ECB’s De Guindos (Spain) noted that the present levels of yields were favorable.
• Iceland Central Bank (Sedibanki) Policy Statement noted that the outlook had improved since its last forecast. Inflation had been higher and more persistent than previously forecasted and appeared to be widespread. Economic recovery in H2 2020 was stronger than expected and saw 2021 GDP growth over 3.0% and 2022 GDP growth over 5.0%.
• German Association of Chambers of Trade and Industry (DIHK) raised its 2021 GDP growth forecast from 2.8% to 3.0% noting that business expectations had improved since Feb.
• Russia Dep PM Novak commented that the global oil prices were broadly stable. To meet Saudi counterparts on Tuesday, May 25th. Did not see any sanctions risks for long-term LNG projects.

Currencies/Fixed Income

• USD Index tested 3-month lows as dealers awaited Fed April Minutes due out later today and expected to confirm that policymakers believed a rate hike is still in the distance. Dealers noted that the easing lockdown measures worldwide could spark more risk appetite and weigh on the dollar as a safe haven. The sell-off in European equities in session did help the greenback move off its worst levels.
• EUR/USD tested 1.2245 before consolidating but remained well contained within the current four big figure trading range. Key resistance remains at the pivotal 1.24 area.
• Cable could not move beyond the 1.42 level despite another pick-up in inflation. UK Apr CPI rose to 1.5% with further gains possible towards the 2% target (as beyond) as the economy reopened.
• Bitcoin was now approx 40% off its recent record highs. The latest round of selling being attributed to China govt banning financial firms from providing cryptocurrency services and warning Chinese investors to stay away from cryptocurrency trading.

Economic data

• (UK) Apr CPI M/M: 0.6% v 0.6%e; Y/Y: 1.5% v 1.5%e; CPI Core Y/Y: 1.3% v 1.3%e; CPIH Y/Y: 1.6% v 1.6%e.
• (UK) Apr RPI M/M: 1.4% v 0.8%e; Y/Y: 2.9% v 2.4%e; RPI-X (ex-mortgages and interest payments) Y/Y: 3.2% v 2.7%e; Retail Price Index: 301.1 v 299.5e.
• (UK) Apr PPI Input M/M: 1.2% v 1.0%e; Y/Y: 9.9% v 8.5%e.
• (UK) Apr PPI Output M/M: 0.4% v 0.4%e; Y/Y: 3.9% v 3.4%e.
• (EU) EU27 Apr New Car Registrations: 218.6% v 87.3% prior.
• (AT) Austria Apr Final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 1.9% v 1.9% prelim.
• (ZA) South Africa Apr CPI M/M: 0.7% v 0.5%e; Y/Y: 4.4% v 4.3%e.
• (ZA) South Africa Apr CPI Core M/M: 0.3% v 0.1%e; Y/Y: 3.0% v 2.8%e.
• (UK) Mar House Price Index Y/Y: % v 7.7%e.
• (IS) Iceland Central Bank (Sedibanki) raised the 7-Day Term Deposit Rate by 25bps to 1.00%.
• (EU) Euro Zone Apr Final CPI Y/Y: 1.6% v 1.6%e; CPI Core Y/Y: 0.7% v 0.8%e.
• (CY) Cyprus Apr CPI Harmonized M/M: 0.8% v 1.4% prior; Y/Y: 1.2% v 0.3% prior.

Fixed income Issuance

• (FI) Finland opened its book to sell new Sept 2031 RFGB bond via syndicate; guidance seen -1bps to mid-swaps.
• (DK) Denmark sold total DKK5.83B in 2024 and 2052 bonds.
• (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2023 and 2029 bonds.
• (UK) DMO sold £2.5B in 0.625% July 2035 Gilts; Avg Yield: 1.264% v 1.105% prior; Bid-to-cover: 2.53x v 2.46x prior; Tail: 0.2bps v 0.2bps prior.

Looking Ahead

• (IT) ECB’s Panetta (Italy) and Rehn (Finland) at Conference.
• (EU) Daily ECB Liquidity Stats.
• 05:30 (DE) Germany to sell €4.0B in 0% Feb 2031 Bunds.
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month bills.
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• 06:45 (US) Daily Libor Fixing.
• 07:00 (RU) Russia OFZ Bond auction (if any).
• 07:00 (US) MBA Mortgage Applications w/e May 14th: No est v 2.1% prior.
• 07:00 (ZA) South Africa Mar Retail Sales M/M: -0.2%e v +6.9% prior; Y/Y: 2.5%e v 2.3% prior.
• 07:00 (BR) Brazil May IGP-M Inflation (2nd Preview): 2.8%e v 1.2% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (CA) Canada Apr CPI M/M: 0.2%e v 0.5% prior; Y/Y: 3.2%e v 2.2% prior; Consumer Price Index: 139.8e v 139.6 prior.
• 08:30 (CA) Canada Apr Teranet House Price Index M/M: No est v 1.5% prior; Y/Y: No est v 10.8% prior; HPI: No est v 255.68 prior.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).
• 10:00 (US) Fed’s Bullard.
• 10:30 (US) Weekly DOE Oil Inventories.
• 11:35 (US) Fed’s Bostic at event.
• 11:50 (IE) ECB’s Lane (Ireland, chief economist) at conference.
• 12:00 (RU) Russia Apr Industrial Production Y/Y: 6.5%e v 1.1% prior.
• 12:00 (CA) Canada to sell 3-year notes.
• 13:00 (US) Treasury to sell 20-Year Bonds.
• 14:00 (US) FOMC Apr Minutes.
• 15:00 (AR) Argentina Apr Trade Balance: No est v $0.4B prior.
• 19:50 (JP) Japan Apr Trade Balance: ¥147.7Be v ¥662.2B prior (revised from ¥663.7B): Adjusted Trade Balance: ¥70.4Be v ¥297.8B prior; Exports Y/Y: 30.8%e v 16.1% prior; Imports Y/Y: 9.0%e v 5.8% prior (revised from 5.7%).
• 19:50 (JP) Japan Mar Core Machine Orders M/M: +5.0%e v -8.5% prior; Y/Y: -3.3%e v -7.1% prior.
• 21:00 (CN) China Apr Swift Global Payments (CNY): No est v 2.5% prior.
• 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years, 5~10 Years and 25 Years~ maturities.
• 21:30 (CN) China Monthly Loan Prime Rate (LPR) Setting: 1-Year Loan Prime Rate expected to be left unchanged at 3.85%; 5-Year Loan Prime Rate expected to be left unchanged at 4.65%.
• 21:30 (AU) Australia Apr Employment Change: +20.0Ke v +70.7K prior; Unemployment Rate: 5.6%e v 5.6% prior; Full Time Employment Change: No est v -20.8K prior; Part Time Employment Change: No est v +91.5K prior; Participation Rate: 66.3%e v 66.3% prior.
• 21:30 (KR) Bank of Korea to sell KRW2.2 T in 2-year Bonds.
• 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Standing Lending Rate currently at 5.50%; Standing Deposit Rate currently at 4.50%.